Information Services Group, Inc.

Good morning and welcome everyone to the Information Services Group fourth quarter 2024 conference call. This call is being recorded and a replay will be available on ISG's website within 24 hours. Now I'd like to turn the call over to Mr. Will Thoretz for his opening remarks and introduction. Mr. Thoretz, please go ahead.

Thank you, operator. Hello and good morning. My name is Will Thoretz. I'm a senior communications executive at ISG. I'd like to welcome everyone to ISG's fourth quarter conference call. I'm joined today by Michael Connors, Chairman and Chief Executive Officer, and Michael Sherrick, Executive Vice President and Chief Financial Officer. Before we begin, I would like to read a forward-looking statement. It is important to note that this communication may contain forward-looking statements which represent the current expectations and beliefs of the management of ISG concerning future events and their potential effects. These statements are not guarantees of future results and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. For a more detailed listing of the risks and other factors that could affect future results, please refer to the forward-looking statement contained in our Form 8K that was furnished last night to the SEC and the risk factor section in ISG's Form 10K covering full-year results. You should also read ISG's annual report on Form 10-K and any other relevant documents, including any amendments or supplements to these documents filed with the SEC. You will be able to obtain free copies of any of ISG's SEC filings on either ISG's website at www.isg-1.com or the SEC's website at www.sec.gov. ISG undertakes no obligation to update or revise any forward-looking statement to reflect subsequent events or circumstances. During this call, we will discuss certain non-GAAP financial measures which ISG believes improves the comparability of the company's financial results between periods and provides for greater transparency of key measures used to evaluate the company's performance. The non-GAAP measures which we will touch on today include adjusted EBITDA, adjusted net earnings, and the presentation of selected financial data on a constant currency basis. Non-GAAP measures are provided as additional information and should not be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. For the reconciliation of all non-GAAP measures presented to the most closely applicable GAAP measure, please refer to our current report on Form 8K, which was filed last night with the SEC. And now, I would like to turn the call over to Michael Connors, who will be followed by Michael Sherrick. Mike?

Thank you, Will, and good morning, everyone. Today, we will review our strong Q4 results, our further improved balance sheet, trends we are seeing in the market, and our outlook for Q1. ISG finished the year with a strong fourth quarter. We began the quarter by selling our automation unit for more than $20 million in cash, which significantly improved our balance sheet. We delivered revenues of $58 million and adjusted EBITDA of $6.5 million, improving our EBITDA margins by more than 200 basis points from a year ago. With our strong cash position, we further reduced our debt by $7 million in the quarter. For the year, total debt reduction was 25 percent or $20 million. When you combine the $7 million of debt reduction with dividends of $4.5 million and share repurchases of $2.3 million, we created almost $14 million of value in Q4. On an operating basis, our profitability improved with adjusted EBITDA up 11 percent. This is due to our disciplined operating approach our higher utilization in Q4 up more than 700 basis points year over year, and our improved business mix. Our focus on operational excellence also is reflected in our strong cash flow from operations. With $6.6 million in Q4, coupled with nearly $9 million in Q3, we generated over $15 million in cash in the last two quarters. On the top line, Revenues in our largest region, the Americas, were up 6% versus the prior year, excluding automation. This is an early sign of the improving market conditions we expect in 2025, starting here in the U.S. And our recurring revenues for the quarter were 45% of firm-wide revenues, led by our GovernX supplier management platform. For the full year, excluding the automation unit, recurring revenues were $108 million. A few weeks ago, we announced a strategic repositioning of our firm, reflecting the expanding role ISG is playing in helping our clients adopt AI at scale. We are now positioned as a global AI-centered technology research and advisory firm. This new description captures our two-year journey thus far of deep AI investments in our people, platforms, and products to help enterprises navigate the biggest inflection point in a generation. AI is at the heart of everything we do, from the technology strategies we develop and the partners we recommend to our clients, to the impact of AI on the future of work. We have truly become an AI-centered firm. ISG has served more than 100 clients with AI-focused research and advisory services over the past 12 months. We expect this number to double in the year ahead. We are working with our clients to set AI strategy, create AI-ready infrastructure and data, build AI provider ecosystems, and establish AI governance frameworks. ISG Research, meanwhile, has produced detailed AI market surveys and analysis covering both the service and software provider ecosystems. We expect these AI-related activities to become an increasingly important component of our business over the next two years. Growth will accelerate as enterprises move beyond the planning and experimentation phases and begin to adopt AI more broadly across their organizations. At the same time, ISG is leveraging AI to improve the speed and efficiency of our proprietary client platforms, most notably ISG Tango, our groundbreaking sourcing platform launched last year. More than $7 billion of sourcing contract value now flows through ISG Tango, up 40% from the third quarter. Looking ahead, we believe our investments in sourcing, AI, and software position ISG for strong growth. Before I turn to our regions, I want to emphasize that our US public sector business has no US federal government exposure. It is focused solely on state and local governments. I also want to share some comments on two key trends we are seeing in the market that should benefit ISG. First, a resurgence in cloud transformation. We are engaging with clients on their accelerated AI-driven cloud adoption and infrastructure investments. With added momentum to push even more infrastructure and applications to the cloud, the market is moving right into a sweet spot for ISG. Second, we are seeing market hesitation lifted. There is a greater degree of certainty that tax cuts will be extended, geopolitical conflicts are directionally heading toward a positive conclusion, and inflation and labor costs are becoming more manageable. Of course, the real impact of tariffs is not known, but we see clients sourcing larger and longer duration contracts to optimize costs, thereby bringing crucial discretionary spend for more investments in AI-driven transformation. This is right in our power alley. In short, we are optimistic about our prospects. With that, let me turn to our regions. Bear in mind that the comparisons I cite here are versus the prior year and exclude automation revenues to provide a more accurate view of our ongoing business. In the Americas, revenues were $38 million, up 6%. During the quarter, we saw double-digit growth in banking, the public sector, manufacturing, energy, and the utilities industry verticals, and in our consulting and GovernX businesses. Key client engagements during the fourth quarter included Carnival, PSE&G, and Syncora, formerly Amerisource Bergen. AI continues to be embedded in almost everything we do with our clients. Many of our client engagements, including those I mentioned here, have strong elements of AI, including adopting artificial intelligence for IT operations, or AIOps, as part of sourcing strategies, designing operating models to integrate AI, and understanding the productivity and financial impacts of AI. In the healthcare sector, for example, ISG ran a major sourcing engagement for a large healthcare solutions company. We advised this multi-million dollar client on its transition to SAP's S4 HANA and developed a strategic roadmap for sourcing infrastructure and security services, leveraging AIOps. We also delivered a multi-tower sourcing engagement for a large regional healthcare provider using our ISG Tango platform, part of a multi-million dollar series of engagements with this client. After a successful assessment phase, we have continued our training as a service work supporting a major aerospace and defense company in its transition to SAP S4 HANA. This significant multi-million dollar contract covers the training of tens of thousands of employees across four major business units of this company. AI will be leveraged here to improve the delivery efficiency of our services. Turning to Europe, the European market remains cautious in the face of challenging macro conditions, but we expect improvement later in the year as demand begins to rebound. Q4 revenues of $15 million were down 15%. Europe was led by double-digit growth in our insurance industry vertical in the quarter. Key client engagements in Europe in the third quarter included Volkswagen, Allianz, and Barmer. During the quarter, ISG provided change management, benchmarking, and software services to a new client, a large European insurance company, and is currently working on an infrastructure sourcing engagement involving multiple towers. Again, incorporating AIOps to drive efficiency gains and cost savings. This client will soon cross the $1 million threshold in revenues with further growth anticipated this year. We also expanded our work with a large engineering solutions and construction firm to support the client's overall digital transformation. Our multi-pronged engagements include IT sourcing, supplier management, cybersecurity, and data governance, as we support this client in leveraging AI across its organization. Now, turning to Asia Pacific, we had Q4 revenues of $5 million, down $1 million from last year. During the quarter, Asia Pacific delivered double-digit revenue growth in our banking, consumer services, energy, utilities, and health sciences industry verticals. Key clients for the quarter included IEMO, the Australian Energy Market Operator, Endeavor Group, and AGL Energy. During the quarter, we worked with one of Australia's leading regional banks to support its digital banking strategy. This included helping them select a provider to modernize the bank's IT services with AIOps and supporting its transition to the cloud. Now, let me turn to guidance. As I mentioned last quarter, we are seeing positive signs that demand for technology services is picking up as we expected, most notably in the U.S., where our pipeline is strong. ISG is well positioned to capitalize on our market opportunities. We have the AI expertise and sourcing capabilities, along with unmatched software and services research. to guide our clients through the next technology wave powered by AI. So for the first quarter, we are targeting revenues of between $58 and $59 million, and adjusted EBITDA between $6.5 million and $7.5 million, or at least 45% higher than the first quarter last year. Our guidance reflects the expectation that growth will continue to accelerate in the Americas, with Europe picking up later in the year. So with that, let me turn the call over to Michael Sherrick, who will summarize our financial results. Michael?